An Empirical Study Of Impacts That Political Connections Act On The Private-Owned Firms Listed In A Share

Almost 46% of the Private-Owned firms listed in A Share in a sample of 989 in China are politically connected firms during the year 2004 to 2006. Firms with politically connections would get some advantages from those connections compare to firms without politically connections. For example, the politically connected firms usually have higher total leverage rate and long-term leverage rate than their peers which do not have political connections which mean the former get easier ways to debt financing. The more powerful the connections are, the more advantages the firm would have. However, firms have to pay for the connections. They have to fulfill the politicians'objective instead of gaining maximum profits. Such as more taxation they have to pay and more employees they have to hire to attain the politicians'requirement. The less powerful the connections are, the more cost firms have to pay. Finally, we cannot find the significant relations between the firms'performance and the political connections.